In a recent discussion post, Chris Remus of the Ethereum Name Service (ENS) announced the team's upcoming three-to-six-character domain auction. The auction design should be finalized by early January 2019, with plans to begin the auction mid-March.
Within the existing ENS registrar, only domains seven characters or longer can be registered. Remus indicated that this constraint was imposed to prevent land-grabbing from speculators "before the [ENS] system was widely known and used."
The forthcoming auction will last 45 days, comprised of a 30-day bid period and a subsequent 15-day reveal/claim period. Like the standard ENS domain registration process, the auction will be conducted Vickrey style, meaning the bid amounts are obscured until the reveal period. The highest bidder wins the domain, but they only pay the amount of the second-highest bid.
Unlike the typical domain registration process, the three-to-six-character auction requires winning bidders to spend their ETH upfront rather than deposit it to claim their domains. That is, instead of the ETH being returned to a domain holder if they release control of their name at the end of the yearlong lease period, the ETH is used to "fund ongoing ENS operations," according to Remus.
Remus reminds the community that the auction's logistics "reflect [the team's] current thinking." The ENS hopes to receive feedback about the auction design before finalizing the process in January. Indeed, the ENS is already weighing a couple of considerations, such as whether there should be a whitelist for well-known .eth domains and where overflow funds (if there are any) should be allocated.
The one caveat to this community feedback and discussion is that the ENS is on a tight schedule. The team would like to make its original deadline of two years after the ENS launched (which would be around May 4, 2019) to institute a permanent registrar.
However, one vocal reddit user took umbrage with the auction, namely the fact that the proceeds would be used to fund ENS operations. The individual noted:
"There is no clarity on what legal entity will control the funds (will it be the EF?). There is no plan on where the funds will be spent. There is no serious justification why they want to take 100% of the auction procees as apposed [sic] to any other number between 0-99."
Nick Johnson, lead developer at the ENS, responded to this criticism and reiterated that the team's "explicit goal … is to solicit feedback and build consensus." He even said the ENS would delay the auction, if needed, "to reach consensus."
Further, Ethereum creator Vitalik Buterin joined the discussion to propose a Harberger tax for the domain names. This alternative taxation model, which economic thinkers Glen Weyl and Eric Posner revisited in their paper "Property Is Only Another Name for Monopoly," calls for individuals to periodically report valuations on their property and pay property taxes based on these valuations. (At any time, though, somebody could force a sale and buy another person's property at the established price.) Applied to the ENS auction, domain holders would pay a tax to maintain ownership of their names, rather than renewing their leases at the end of the year.
Buterin said there were three key benefits to including such a taxation model within the auction's design:
"1. It prevents over-privileging people who happen to be part of the ethereum ecosystem and have the technical skills to bid for these domains in 2019, at the expense of all future ecosystem participants.
"2. Instead of just getting a one-time pool of revenue, you get revenue over time.
"3. Because of both (1) and (2), it reduces the risk of creating a large pool of stakeholders who benefit from ENS being overthrown and replaced by another system, and achieving that objective."
Buterin has a point, too. Regarding his first contention, in a perpetual auction system enabled via a Harberger tax, users who join the Ethereum ecosystem in the future would not necessarily be disadvantaged due to the lack of available names. Rather than certain domains being held by users indefinitely, a newcomer could, theoretically, force a sale and acquire a name if they paid the price.
His second argument is self-evident, as a continual tax would lead to more revenue over time.
Regardless of whether a Harberger taxation model is pursued, other reddit users defended the ENS' upcoming auction, mentioning that "it's actually very good and fair" and that the team should "retain full control on how" it decides to fund its work. As one individual responded to the original critic, "I have no idea why you're screaming about [the auction]."